Australia’s wool production forecast is at a 21-year low, the worst ever on record.

In it’s latest estimates the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) said wool production during the 2018/19 season will total 385,000 tonnes - down five per cent from an estimate in September of 404,000 tonnes.

That forecast would mean the smallest amount of wool produced since before 1997 (Australia does not keep official records on wool production before this date).

Continuing dry seasonal conditions across much of Australia’s east coast, home to a big portion of the country’s livestock industry, have forced producers to cull sheep due to lack of grass and soaring feed prices.

The area has received less than 40 per cent of the rain that would typically fall in the last six months.

Yet the decline in production is anticipated to support prices with the Eastern Market Indicator (EMI) expected to support prices for the remainder of 2018-19 even with the reduction in buyer demand resulting in a sharp decline of 12pc since August 2018.

Trade consultant for Australian Wool Innovation, Scott Carmody said the market is currently on “tender hooks” even though it is a good situation for those that can maintain their stock numbers.

“A lack of supply in the market causes spikes and falls of a greater magnitude because it is all exaggerated,” Mr Carmody said.

“Because we are going into wool sales that have 38,000 or 40,000 bales at the peak of the season like what we have been seeing, it does hit home that the supply will eventually have to kick in on this market.”

But he said producers don’t mind putting the money into feed when they are getting a $80 to $95 fleece off the animal and potential $150 lamb.

He said woollen mills have changed their mind set.

“Most of the mills in China have decided that rather the machinery being the demand, they are now looking for true price indicators,” Mr Carmody said.

“They are now looking two or more months forward where they have to start considering starting production for next year’s autumn winter sale for the northern hemisphere.”

Australia provides about 90 percent of the world's exported fine wool used in clothing manufacturing.

The hit to production will put pressure on the global garment manufacturing industry with ABARES saying wool exports will fall nine percent during the 2018/19 season from the previous season.

Lower production will force millers to either pass on the cost or require retailers to cut down on the use of the fibre.

Mr Carmody said he expects the production forecast to fall even more than the current estimate.

“As a wool industry we are looking at a 10 to 15 per cent reduction,” he said.

“NSW’s wool production could fall by up to 20 per cent.

“The people on the ground are telling us the wool production out of the western district in particular, as a state NSW is looking at a 20 to 30 per cent reduction – 30pc the further west you go and 20pc closer inland.

“That is basically less wool cut per head, but the loss of sheep numbers as well.”

The overall impact of the US-China trade dispute on world textile trade and derived demand for Australian wool remains uncertain with Chinese consumer confidence and garment sales on the decline since the escalation of the trade tensions.

ABARES reports that this could signal weakening textile demand in China, especially for high-value woollen apparel.